Court of Appeal confirms declaratory awards can be enforced under section 66 Arbitration Act 1996
In West Tankers Inc v Allianz SpA and another  EWCA Civ 27, the Court of Appeal considered whether the court has power to enter judgment in terms of a declaratory award. (Free access.)
The Court of Appeal has confirmed that the court has power to enter judgment in terms of a declaratory award under section 66 of the Arbitration Act 1996. In the award, the arbitrators had made a declaration that the claimant shipowners were not liable for a collision. The owners want to be able to use the award to pre-empt the enforcement of any contradictory judgment that may be obtained by the defendant in the Italian courts, where it had commenced proceedings in breach of an arbitration clause.
Giving the judgment of the court, Toulson LJ held that section 66 should be interpreted to enable the courts to give judicial force to an award on the same footing as a judgment not just by normal forms of execution, but also other means (such as recognising that the award gives rise to an issue estoppel or res judicata). He noted that a party who has obtained an arbitration award in its favour could bring an action on a declaratory award and the court could make a declaration in the same terms. Section 66 was supposed to simplify enforcement, so there was no reason why the court should not give leave for judgment to be entered in terms of the award in an appropriate case, instead of an action on the award being necessary.
The Court of Appeal's decision provides welcome clarification that, in principle, awards taking the form of a negative declaration may be enforced in the same manner as a judgment. However, it will be necessary to satisfy the court that it is appropriate to take that course in a given case. (West Tankers Inc v Allianz SpA and another  EWCA Civ 27.)Close speedread
Enforcement of awards in England
An award made by a tribunal under an arbitration agreement may be enforced in the same manner as a judgment or order of the court by leave of the court (section 66, Arbitration Act 1996 (AA 1996)). For further information about enforcement, and the differences between the section 66 procedure and an action on the award, see Practice note, Enforcing arbitration awards in England (www.practicallaw.com/1-363-3952).
A declaratory judgment or award states the respective rights and obligations of the parties. In Margulies Brothers Ltd v Dafris Thomiades and Co (UK) Ltd  1 Lloyd's Rep, a decision under section 26 of the Arbitration Act 1950 (the equivalent of section 66 of the AA 1996), the court declined to enforce an award that was declaratory in form because it was "not an award of a sum certain, and was not, therefore, one capable of being enforced". In Tongyuan (US) International Trading Group v Uni-Clan Ltd (unreported), 19 January 2001, (Commercial Court), Moore-Bick J said that Margulies was authority for the proposition that an award couched in purely declaratory terms could not be enforced as a judgment and that, on an application under section 66, the court was concerned with the form of the award, not its substance.
In AED Oil Ltd v Puffin FPSO Ltd  VSCA 37, the Court of Appeal of the Supreme Court of Victoria considered section 8 of the International Arbitration Act 1974 (Cth), which is in substantially the same form as section 66 of the AA 1996. The court distinguished Margulies, on the ground that in that case, the award was not merely in declaratory form, but was unclear in its terms as to the payment that was to be made. It cited David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (Sweet & Maxwell, 23rd ed, 2007), paragraph 8-012, which stated that, "provided the terms of the award are sufficiently clear there is now no reason why a declaratory award cannot be enforced under section 66".
In West Tankers Inc v Allianz Spa and another  EWHC 829 (Comm) (www.practicallaw.com/6-505-6084) and African Fertilizers and Chemicals Nig Ltd (Nigeria) v BD Shipsnavo GmbH & Co Reederei Kg  EWHC 2452 (Comm) (www.practicallaw.com/2-508-8992), Field J and Beatson J (respectively) granted leave to enter judgment in terms of a declaratory award where the claimants sought to establish the primacy of the award over any subsequent inconsistent judgment of an EU court (see Legal updates, Declaratory award can be enforced (Commercial Court) (www.practicallaw.com/8-505-6083) and Enforcement of declaratory award (Commercial Court) (www.practicallaw.com/6-508-8155). In both cases, the judges considered that the problem in Margulies was the lack of certainty of the effect of the award. Beatson J also cited the passage in Russell on Arbitration.
West Tankers and the Brussels Regulation
In Allianz SpA v West Tankers Inc (Case C-185/07)  ECR I-663, the Court of Justice of the EU (ECJ) held that an anti-suit injunction granted by the English court to restrain pursuit of Italian proceedings brought in breach of an arbitration clause was inconsistent with the Brussels Regulation (www.practicallaw.com/2-205-5103) (see Legal update, West Tankers ECJ judgment: full report (www.practicallaw.com/5-385-0043)). The anti-suit injunction was discharged and the Italian proceedings continued.
A judgment shall not be recognised if it is irreconcilable with a judgment given in a dispute between the same parties in the member state in which recognition is sought (Article 34(3)).
The dispute between the parties arose out of a collision involving the vessel Front Comor. The charterparty contained an arbitration clause and the arbitrators made an award in the claimant owners' favour, declaring that the owners were not liable to the charterers' insurers for the collision. In the meantime, the insurers had brought proceedings in Italy and the anti-suit injunction granted by the English courts had been discharged following the ECJ's decision (see West Tankers and the Brussels Regulation). The Italian proceedings are pending.
The owners applied to the English court to enter judgment in terms of the arbitration award, with a view to using it to resist enforcement of any subsequent inconsistent judgment of the Italian courts, by virtue of Article 34 of the Brussels Regulation. Field J held that the court had jurisdiction to enter judgment in terms of the award under section 66 of the AA 1996, because this would "make a positive contribution to the securing of the material benefit of the award" (see Legal update, Declaratory award can be enforced (Commercial Court) (www.practicallaw.com/8-505-6083)).
On appeal, the issue for the court was whether the judge had jurisdiction under section 66 to direct that judgment be entered in terms of the award. Among other things, the insurers argued that the judge gave the word "enforced" in section 66 an unnaturally wide meaning, when he should have held that a declaratory judgment, especially a negative declaratory judgment, is incapable of being "enforced".
The owners relied on the Privy Council's judgment in Associated Electric & Gas Insurance Services Ltd v European Reinsurance Company of Zurich  UKPC 11 (AEGIS) as an example of a case where the court had enforced a declaratory award. In that case, the Privy Council applied the doctrine of issue estoppel to allow a party to rely on an award in an earlier arbitration between the same parties.
The Court of Appeal unanimously dismissed the appeal and upheld the judgment and reasoning of Field J.
Toulson LJ, giving the judgment of the court, considered that the phrase "enforced in the same manner as a judgment to the same effect" was not confined to enforcement by one of the normal forms of execution of a judgment, but could also include other means of giving judicial force to the award on the same footing as a judgment.
In Toulson LJ's view, this broader interpretation was more consistent with the purpose of the AA 1996 and made better sense in the context of the way in which arbitration works. He accepted that the courts could give force to an award by a number of means, including by applying the doctrine of issue estoppel, as in AEGIS. The enforcement of any judgment or award was the enforcement of the rights that the judgment or award had established.
In this case, the owners wanted to enforce the award through res judicata and that was why they sought to have the award entered as a judgment.
Toulson LJ noted that a party who has obtained an arbitration award in its favour could bring an action on a declaratory award and the court could make a declaration in the same terms. Section 66 was supposed to simplify enforcement, so there was no reason why the court should not give leave for judgment to be entered in terms of the award in an appropriate case, instead of an action on the award being necessary. However, he stressed that this was not just a "rubber stamping exercise", the court must judicially assess whether it should enter judgment in terms of the award in any given case. There may be reasons why it would be inappropriate, for example, because it was unnecessary.
The Court of Appeal's decision provides welcome clarification that awards taking the form of a negative declaration may be enforced in the same manner as a judgment to that effect. However, this is not a blanket rule and it will be necessary to satisfy the court that it is appropriate to take that course in a given case.
It remains to be seen whether the Italian courts will, in fact, give judgment in favour of the insurers and, if so, whether Article 34 of the Brussels Regulation will prevent the Italian judgment from being enforced.